DOJ Criminal Division Launches Pilot Program Incentivizing Individuals to Report Corporate Criminal Misconduct

On April 15, the Criminal Division of the U.S. Department of Justice (“DOJ”) announced a Pilot Program on Voluntary Self-Disclosure for Individuals (the “VSD Pilot Program” or the “Program”).[1]  The VSD Pilot Program offers non-prosecution agreements (“NPAs”)[2] to qualifying individuals who proactively provide original information to the Criminal Division concerning certain specified types of corporate criminal misconduct.

This marks the first time a DOJ program has explicitly offered to forego prosecution of an individual in exchange for their cooperation against a company.  Although the Program applies broadly to misconduct by any public or private company, the Program appears focused on misconduct by banks, investment funds and health care providers, and on violations of the Foreign Corrupt Practices Act, the Foreign Extortion Prevention Act,[3] the money laundering statutes, as well as fraud in connection with government contracting and the payment of bribes or kickbacks to domestic public officials.

DOJ has adopted a number of programs aimed at promoting whistleblower complaints and corporate voluntary self-disclosures.[4]  The VSD Pilot Program continues DOJ’s focus on corporate criminal enforcement and underscores its efforts to, as Deputy Attorney General Lisa Monaco stated last month, “create new incentives for individuals to report misconduct” to DOJ and “drive companies to invest further in their own internal compliance and reporting systems.”[5]  At that time, DOJ commenced a “90-day sprint” to develop a whistleblower program that will provide financial incentives to individuals “not involved in the criminal activity itself” to provide tips on an array of criminal activity.[6]  The VSD Pilot Program complements the whistleblower program by offering an incentive for qualifying individuals who are involved in the criminal activity to report information to DOJ.

By offering NPAs to individuals who are engaged in criminal misconduct, the program creates a significant incentive for employees involved in criminal misconduct to be “first in the door” and cooperate against their employer and fellow employees.  This incentive may pose challenges for companies conducting internal investigations because interviewing implicated individuals may prompt them to report information to DOJ in an effort to obtain an NPA under the VSD Pilot Program.[7]

Although DOJ traditionally emphasizes individual liability, the Program underscores that there is a heightened focus on corporate liability too, and DOJ is willing to offer an NPA to an individual who can provide original information about high-priority corporate criminal misconduct.

The Criminal Division’s announcement follows recent announcements by U.S. Attorneys Offices in the Southern District of New York and the Northern District of California about similar, but not identical, incentives for voluntary disclosures.[8]  This overlap may create questions for individuals about to which part of DOJ to report misconduct, and could create “forum shopping” issues, at least outside of those areas where the Criminal Division has a clear responsibility under DOJ policy.

Criteria

The VSD Pilot Program is subject to a number of conditions, including the following:

• Qualifying Corporate Criminal Violations: The Program applies to only certain qualifying offenses, including:
  1. violations by financial institutions, their insiders, or agents involving money laundering, anti-money laundering, registration of money transmitting businesses, and fraud statutes, and fraud against or compliance with financial institution regulators;
  2. violations related to the integrity of financial markets by financial institutions, investment funds, investment advisors, companies with 50 or more employees, or by any insider or agent of such entity;
  3. violations of foreign corruption or bribery statutes (including the FCPA and the new Foreign Extortion Prevention Act) by, through, or related to public or private companies;
  4. violations related to health care fraud or illegal health care kickbacks committed by or through public companies or private companies with 50 or more employees;
  5. violations by or through public or private companies with 50 or more employees related to fraud against, or the deception of, the United States in connection with federally funded contracting (where such fraud does not involve health care or illegal health care kickbacks); and
  6. violations committed by or through public or private companies related to domestic bribery.
• Original Information: The reporting individual “must disclose original information, meaning non-public information not previously known to the Criminal Division or to any component of the Department of Justice[.]”  Notably, this appears to require that the individual report the non-public information to the Criminal Division before going to any U.S. Attorney’s Office or other DOJ component.
• Voluntary Disclosure: The disclosure must be voluntary, meaning (1) it must be made prior to any “request, inquiry, or demand that relates to the subject matter of the submission is directed to the individual or anyone representing the individual [(g., legal representation)] by the [DOJ] in connection with any investigation, or by a federal law enforcement, regulatory, or civil enforcement agency regarding the same misconduct”; (2) there must not be a “preexisting obligation under an agreement in connection with a criminal prosecution or civil enforcement action” to report the information to DOJ or other federal authorities; and (3) the disclosure must be made in the “absence of any government investigation or threat of imminent disclosure to the government or public.”
• Truthful and Complete Disclosure: The disclosure must be “truthful and complete.”  This means that the individual must disclose all information that she knows relates to any misconduct in which the individual has participated in and/or of which the individual is aware.  The individual must provide truthful and complete answers on “all matters about which the Department may inquire.”
• Cooperation and Substantial Assistance: The Program requires that the individual “fully cooperate” and provide “substantial assistance” in “its investigation of related conduct and prosecution of equally or more culpable individuals or entities.”  The policy also defines cooperation as a willingness to produce “documents, records, and other evidence,” as well as to engage in proactive cooperation efforts (g., wearing a wire) if requested by DOJ.
• Disgorgement/Forfeiture: The “reporting individual must agree to forfeit or disgorge any profit from the criminal wrongdoing and pay restitution or victim compensation.”
• Exclusions: Individuals cannot qualify for the program if they (1) “engaged in criminal conduct involving violence, use of force, threats, substantial patient harm, any sex offense involving fraud, force, or coercion, or relating to a minor, or any offense involving terrorism”; (2) are the “Chief Executive Officer (or equivalent) or Chief Financial Officer (or equivalent) of a public or private company” or “the organizer/leader of the scheme”; (3) are “an elected or appointed foreign government official”; (4) are “a domestic government official at any level, including any employee of a law enforcement agency”; or (5) have “a previous felony conviction or a conviction of any kind for conduct involving fraud or dishonesty.”

Under the VSD Pilot Program, Criminal Division prosecutors will also “retain discretion to offer an NPA to individuals in appropriate circumstances, including where individuals come forward pursuant to the Pilot Program but the criteria above are not met in full.”[9]

Compliance Considerations

The VSD Program is effective immediately, and so potentially impacted companies should consider taking additional compliance-related measures.  As we noted regarding the DOJ whistleblower program launched in March, companies should consider the following:[10]

• Because the DOJ Program will cover a range of potential misconduct, including fraud and bribery, companies should consider reviewing and updating their whistleblowing policies and procedures (or adopting them if needed). These policies and procedures should address the assessment and prompt internal investigation of allegations of misconduct, as well as non-retaliation against whistleblowers (and avenues for whistleblowers to seek recourse in the event there is retaliation).
• Companies may also wish to consider developing a clear framework for prompt reporting of potential violations internally, and early evaluation of those matters, so that the company will be well-positioned to determine whether, when and how to file a Voluntary Self Disclosure and be “first in the door” to report potential violations.

We will monitor developments related to the VSD Pilot Program and similar DOJ programs in the coming months.

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[1]        Dep’t of Justice, The Criminal Division’s Pilot Program on Voluntary Self-Disclosure for Individuals (Apr. 15, 2024), available here.

[2]        An NPA is a contractual agreement between DOJ and an individual facing criminal investigation pursuant to which DOJ agrees not to bring criminal charges in exchange for, among other things, the individual’s cooperation in an investigation and in any proceeding that may follow.  See generally Dep’t of Justice, Principles of Federal Prosecution of Business Organizations, available here; see also Dep’t of Justice, Principles of Federal Prosecution, available here (“non-prosecution agreements . . . are, in essence, agreements not to enforce the law under particular conditions.”).

[3]        See Paul, Weiss, Congress Passes Foreign Extortion Prevention Act, Expanding Federal Criminal Liability to Foreign Officials (Dec. 22, 2023), available here.

[4]        Id.

[5]        See Paul, Weiss, DOJ Announces New Whistleblower Program Aimed at Increasing Corporate Enforcement (Mar. 18, 2024), available here; see also Dep’t of Justice, Deputy Attorney General Lisa Monaco Delivers Keynote Remarks at the American Bar Association’s 39th National Institute on White Collar Crime (Mar. 7, 2024), available here.

[6]        Id.

[7]        It remains to be seen how DOJ will treat such cases.  As noted, the Program requires that a disclosure be voluntary, meaning that there must be an “absence of any government investigation or threat of imminent disclosure to the government or public.”  This could be construed to mean that an individual who was the subject of an internal investigation where the company planned to “imminent[ly]” disclose the activity to DOJ may not be eligible.

[8]        VSD Pilot Program at 3.  Notably, the VSD Pilot Program requires that the individual provide “substantial assistance” in “its investigation of related conduct and prosecution of equally or more culpable individuals or entities.” (emphasis added).  The inclusion of “entities” is an addition that is not in the programs launched at the U.S. Attorneys offices.

[9]        VSD Pilot Program at 3.

[10]       Paul, Weiss, DOJ Announces New Whistleblower Program Aimed at Increasing Corporate Enforcement (Mar. 18, 2024), available here.